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What Are the 5 Most Common Retirement Plans to Help Me Retire?

Everyone knows that saving for retirement is crucial for ensuring a healthy financial future, but most people make serious planning mistakes that can undermine their ability to accumulate wealth.

One of the most important decisions that you will have to make is regarding the type of retirement account that you will use. The tax code offers several tax-advantaged accounts that each offer a broadly different range of advantages and disadvantages. You can take the first step toward an enjoyable retirement by taking the time to understand what retirement account is right for you.

401(k) Accounts

401(k)s are the most common form of retirement account because employers can easily set them up without requiring you to do any paperwork. By default, most 401(k) accounts that are created by employers are transferred into a mutual fund managed by investment professionals. However, as with all retirement plans, you can roll over the 401(k) created by your employer into a brokerage account that you control. You can, then, use the funds to buy stocks, bonds, or even real estate.

Advantages of 401(k)s

Disadvantages of 401(k)s

Traditional IRA Accounts

Traditional IRAs are the easiest retirement accounts to set up for most people. You can set up a traditional IRA using your own funds if your employer does not offer a retirement plan. When you set up your own account, you get maximum control over your own assets.

Traditional IRAs also offer the broadest range of investment options, so they are often seen as a good choice for people who aim to become self-employed in the future.

Advantages of Traditional IRA Accounts

Disadvantages of Traditional IRA Accounts

403(b) Accounts

Unlike with other retirement accounts, 403(b) plans are highly restricted. You can only make contributions to a 403(b) account if you work for a nonprofit organization, a public school, or a hospital. The main advantage of 403(b) plans is that they are designed to function as annuities for retirement, so they provide steady returns for people who do not want to get involved in choosing their investments.

Advantages 403(b) Accounts

Disadvantages 403(b) Accounts

Simple IRA Accounts

A Savings Incentive Match Plan for Employees gives advantages that are similar to a traditional IRA. Simple IRAs are different, however, because they are designed for self-employed individuals and small business owners. Only employers with less than 100 employees can set up a Simple IRA plan, so you cannot establish one of these plans on your own if you work for someone else. In general, Simple IRA accounts are seen as more advantageous than other IRA options when they are offered because they legally require employers to match contributions.

Advantages Simple IRA Accounts

Disadvantages Simple IRA Accounts

Roth IRA Accounts

Roth IRAs are retirement accounts that let you withdraw your money at any time without incurring any penalties. Therefore, if you aim to retire early, a Roth IRA might be the best option for you. You can also use a Roth IRA as an investment vehicle in retirement since these accounts are not subject to the minimum distribution rules that apply to other retirement plans. Overall, Roth IRAs are the best option if you demand maximum flexibility.

Advantages Roth IRA

Disadvantages Roth IRA

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